E-mini S&P (March)
Yesterday’s close: Settled at 2997, down 68.00
Fundamentals: The Federal Reserve announced an emergency 50-basis point rate cut yesterday morning and after a short-lived spike, equity markets sold off sharply. We believe U.S benchmarks would have finished at session highs if it were not for the Fed’s action, one that exuded fear. The odds of a 50-basis point cut stood at 100% and risk-sentiment was in recovery-mode from last week’s bloodbath as long as a cut was coming. In fact, we could have seen negative conditions dissipate between now and the deadline for the market to incur its priced in 50-basis points on March 18th, the end of the Fed’s scheduled two-day meeting. Given that they acted with such haste, they must believe conditions will continue to deteriorate and the economic data will drastically miss expectations; this in and of itself is why the market also panicked. Maybe the committee acted before the CDC classifies Covid-19 as a pandemic which could spark widespread panic. When it comes down to it, a critical read on the U.S Services Sector is due at 9:00 am CT. ISM Non-Manufacturing follows a Services PMI number that we believe almost two weeks ago was the true catalyst for last week’s bloodbath, or at least the straw that broke the camel’s back. Here, we have been discussing the inversion between the yield on the 3-month Bill and 10-year Note for weeks and on the heels of this recession indicator Services PMI data horrendously missed to the downside contracting at 49.4 (versus 53.0 expected). We will find out today if it was this data point that the Federal Reserve wanted to get out in front of. There is good news from all of this though, the committee has now reminded the market, traders, investors and the general public that they have your back – when or if that ISM Non-Manufacturing read misses, we can again feel comfortable buying the dip, cautiously of course.
Helping to secure an overnight low and even adding a bullish tailwind was the emergence of Democratic Presidential candidate Joe Biden as the party’s front-runner. We know markets hate uncertainty, and it is widely accepted to find Bernie Sanders camped out in that category of uncertainty – he would cause not only this market but the U.S economy irreparable harm and at all costs the market did not want to see him become the party’s representative. The DNC, shoved Pete Buttigieg and Amy Klobuchar out the door over the weekend, ahead of Super Tuesday, in order for the three [including Biden] to not thinly spread each other’s votes. The strategy has clearly worked for Biden and the DNC, breathing life into what was an otherwise dead campaign.
Technicals: Yesterday’s post-Fed action spike in each the S&P and NQ ran into a thick wall of resistance. For the S&P, it overshot the February 26th gap close of 3110.25 and began stalling at our next major three-star resistance just overhead at 3125.75; these levels are still active and arguably bring an even more definitive pocket of resistance today with the spike high of 3137 just overhead. As for the NQ, it also stalled beautifully at our major three-star resistance at 9000-9037.50 with a high of 9002.50; similarly, this level brings a definitive ceiling for the time being. The crucial level for the S&P remains our Pivot which aligns with the 200-day moving average at 3051-3061.25; above here the bulls have an edge. Furthermore, first key support aligns with our momentum indicator just below and does give the bulls a backstop upon brief waves of violation. However, a decisive break below first key support is negative and the bears are quickly back in the driver’s seat. Our Pivot for the NQ also aligns our momentum indicator and the bulls are in the driver's seat above ... Please sign up at Blue Line Futures to have our entire technical outlook, actionable bias and proprietary levels emailed to you each day.
Crude Oil (April)
Yesterday’s close: Settled at 47.18, up 0.43
Fundamentals: Crude Oil is working higher on the session but ultimately rangebound at the onset of a critical OPEC+ meeting. The cartel is expected to decide tomorrow on how much further to curtail production, but these meetings can last longer than expected. Saudi Arabia is reportedly pushing for a cut of more than 1 mbpd. This jawboning has mounted expectations and lifted the tape a bit. However, there is no true indication on how much Russia will agree to and many believe it will go down to the last minute. The proposed route is thought to be a consensus cut of 600,000 bpd with Saudi Arabia adding an additional 400,000. In this case, Saudi Arabia’s flexibility may be what saves this market from decisively falling below $45 as analysts estimate the potential of zero demand growth this year for the first time in more than four decades.
Inventory data hits the tape at 9:30 am CT. The private ADP survey helped buoy price action late yesterday amid a weakening broader risk-environment. Estimates for the official data ring in at +2.644 mb of Crude, -2.095 mb of Gasoline and -1.928 mb Distillates.
Technicals: We noted early this week that we felt the risk was to the upside, and this played out. For this reason, and given the fundamental deluge expected over the next 24 hours we are now Neutral in Bias. Our momentum indicator this morning aligns closely with our 47.65 level which amid this rangebound week has become an equilibrium. Although the bulls have a slight edge above here, we believe rallies to be capped as we have rare major four-star resistance overhead at ... Please sign up at Blue Line Futures to have our entire technical outlook, actionable bias and proprietary levels emailed to you each day.
Yesterday’s close: Settled at 1644, up 49.6
Fundamentals: Gold roared higher after the Federal Reserve announced a surprise 50 basis point rate cut. The cut itself was not the surprise, but the haste of the announcement certainly was. The Fed is clearly exuding fear by taking this action two weeks before they ultimately had to. Furthermore, Gold did not gain 3% only because of the Fed’s move but because of what is expected to be coordinated global central bank action. Will the ECB or the BoE be next? We have already seen rate cuts from other major central banks such as the RBA. The Bank of Canada is also expected to act today. The trend has lit a rocket under the Treasury complex with the 10-year Note yield breaking below 1% for the first time ever. It reminds us of our Midday Market Minute last Tuesday where Bill Baruch said the groundwork is being set for a 10-year Note yield of 0.88 and a 30-year Bond yield of 1.33%. All in all, these are extremely bullish developments for Gold, so as long as equity markets stay somewhat stable in order to not create widespread margin calls and thus the need to raise cash as such we witnessed last week. ISM Non-Manufacturing is due at 9:00 am CT and we believe the Fed acted yesterday in front of what they fear to be a very poor read. However, if this number comes even near the arguably now-robust expectations for 54.9, we are likely to see near-term waves of selling in the metal.
Technicals: Yesterday’s rip higher may excite bulls to chase this sort of action, however, that is exactly what we advise against. Remember, you do not buy Gold when everyone is screaming for it, that is when you capitalize on Gold that you already own (there are many ways of doing it without selling, please call our trade desk at 312-278-0500). Our Pivot today was old major three-star resistance, a level in which the metal nudged above upon settlement, a lower settle today will exude exhaustion. Furthermore, first key support aligns today’s session low with our momentum indicator and a decisive break below here is negative near-term. That is find with us, as we want to be buyers into major three-star support at ... Please sign up at Blue Line Futures to have our entire technical outlook, actionable bias and proprietary levels emailed to you each day.
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